Andrew Mason, stewardship director, abrdn considers how active fund managers can use their voting power to make a difference.
We recognise our responsibility to vote on the resolutions at the companies we invest in and we take this very seriously – this is how we as investors can make an impact. It’s no surprise that environmental and social resolutions are on the rise, with climate change and employment practices at the forefront. Last year, we voted on around 280 of these resolutions, supporting 49%, voting against 50%, and abstaining in 1%. Generally, we support climate-related, and diversity and inclusion resolutions though it is crucial that these resolutions make sense and drive real improvements at companies. If they fall short of these standards and we think there’s more can be done, we aren’t shy to vote against them.
Our approach to voting and what are we looking for?
We expect the companies we invest in to demonstrate clearly how they are moving towards Paris Agreement aligned goals and targets, and we look for evidence of this action. We have a scoring system that allows us to identify the companies that are lagging and where we are responsible for votes at general meetings, we use them to send a strong message to companies that aren’t meeting their responsibilities.
As of last year, we vote against the chair of the audit committee if we feel a company could do much more to improve its action against climate change. If that individual is not standing for election, we will vote against the annual report and accounts. This approach emphasises the importance we place on climate disclosure and action, and shows that we are willing to escalate action to encourage directors to take personal responsibility. For example, Berkshire Hathaway, the investment company run by renowned investor Warren Buffet was rated an environmental laggard by our in-house assessment. To highlight this and encourage action, we voted against the re-election of the chair of the governance committee.
Perhaps unsurprisingly, companies in the utilities, banks and oil & gas sectors are facing the most resolutions around their plans to mitigate climate change. In the US, resolutions targeting corporate lobbying and political contributions are also significant themes; while in Japan, nuclear energy is a regular topic. At Exxon Mobil’s AGM, we voted in favour of the election of new ‘dissident’ directors, who are committed to speeding up energy transition plans at the oil & gas multi-national, and we were happy to see three of these directors appointed. We voted for a resolution asking the company to report on its climate-related lobbying, which passed. We also supported a request for the company to issue an audited report on how its finances are impacted by the Net Zero 2050 climate scenario, which did not pass, but achieved 49.4% support, suggesting a groundswell it may be possible to build on in the future.
Last year, we saw an increase in resolutions targeting employment practices. One of the key themes was racial equity audits and we supported 90% of these; we supported all of those tabled at banks and other financial services companies. These businesses in particular need to examine and improve their diversity. Investment bank Goldman Sachs was one of those companies to receive a proposal from shareholders asking for a racial equity report. We voted in favour of this resolution, which did not pass. Having engaged with the company to discuss its current approach to diversity and inclusion, we were impressed by the steps being taken and plans in place. It is appropriate for the company to measure the success of these strategies.
We voted in favour of 70% of resolutions asking companies to report on how they assess and manage their human rights risks. Our position here is clear – we expect companies to demonstrate how they conduct human rights due diligence on their products and practices. We require companies to be certain that their products and services don’t breach human rights. In particular, the rise of electronic surveillance technologies and facial recognition software are growing cause for concern.
A shareholder resolution proposed that Amazon report on the potential human rights impacts of its Rekognition facial recognition product. We voted in favour of the resolution, which did not pass because the company would likely benefit from an independent report on how its due diligence process determines whether customers’ use of its products or services contribute to human rights violations. The company’s decision to place a one-year moratorium on police departments’ use of the Rekognition product indicates that it acknowledges the potential risks associated with its technologies.
Diversity and inclusion
As a global asset manager, we recognise the importance of taking regional differences into account. We want to see far greater diversity and inclusion on company boards because we believe companies making progress here are better positioned for long-term sustainability and outperformance. Where companies fall short of our expectations, we generally vote against the chair of the nominations committee or against the annual report and accounts. However, we accept that different countries and regions are making progress at different speeds and we do take this into account (See table below for detail).
Active investors, by using the voice and voting power afforded to us by our clients, can engage with companies to undoubtedly shape their future narrative. We have been able to see this first-hand. A radical resolution today that only achieves a handful of votes is possibly tomorrow’s bold new direction, which will achieve support across the board. We are proud to play our part in the transformation that shareholders are bringing to the boardroom.
Our regional differences are briefly summarised in the table below:
|We expect board composition of 40% male, 40% female and 20% any gender
|We have targeted five countries, based on exposures and where we feel we can best push for change, calling on companies to improve Exec diversity
|We expect companies to have at least one woman on their board
|Our expectations are in line with the recommendations of the Hampton-Alexander and Parker reviews
|We expect 25% female representation on boards (to be increased to 30% in 2023) and one racially or ethnically diverse director